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More on banking scams: Where the rot started

I got the weirdest phone sales call yesterday from Punjab National Bank. It was obviously from their call center but the lady very politely asked me whether I wanted a loan! I asked her, equally politely, was she wanting another Nirav Modi on their rolls of Non-Performing Assets. She quickly disconnected. I was left to wonder why PNB had not shut this call center down. This is the least they can do after being in the dock for Rs 12,000 crore of unsecured loans.

I wonder why they have such call centres at all. I mean in this day and age if someone wants a loan they can go to their bank to ask for it so why do they need to make a sales pitch to totally unknown people. Why waste money and time?

Coming bank to what I call the Great Banking Robbery, I have had much more information I want to share with my readers that goes back to when the rot started.

The Indian banking sector was nationalized by Indira Gandhi. Perhaps she did this to make it more accessible to all Indians but this did not happen. Her idea was purely socialist which she inherited from her father. This is not to say that private banks cannot pile up huge debts and go under. Citi Bank almost went under in 2008 but the Obama government bailed it out. It was as they say too big to fail.

Currently, we in India as I described in my last article, are going through a series of NPAs and unfortunately nationalized banks are at the centre of the debate. There is definitely crony capitalism and some political pressure. I relate a story that has been sent to me and that I verified to be true. It is written by Narayan Vaghul who started the ICICI Bank and his mentor was Mr. R. K. Talwar a highly respected banker who was the Chairman of the State Bank of India from 1959 to 1976.

In a story that has gone viral now Vaghul recalls how in 1974, a cement company that was in deep depth approached the SBI chairman to ask for another loan. Talwar said he could only give it to them if they restructured their company and got in professional management. Talwar guessed that there was gross mismanagement and the owners were siphoning off money. They refused to do this. Talwar said in that case they would not get the loan.

The cement company owner was a friend of Sanjay Gandhi and told him what had happened. Sanjay told the than Finance Minister, Pranab Mukherjee, to get his friend the loan he had asked for. Pranab spoke to Talwar and told him to get it done but Talwar told him the problems and said under the banking rules it simply could not be done unless the person complied with the Bank’s restructuring program.

The minister then called him to Delhi and explained to him how he had instructions from the highest authority in the country and that he should comply. Talwar stood his ground and refused.

Then Sanjay Gandhi himself asked Talwar to meet him. Talwar refused to meet him, saying he had no constitutional authority. Sanjay’s response was swift: Sack Talwar.

This was easier ordered than done, because under the State Bank of India Act the chairman could not be removed without sufficient cause. Pranab offered Talwar a different assignment, to chair the proposed Banking Commission. Talwar said he would accept and could do that in addition to being the SBI chairman.

The minister looked unhappy, so Talwar observed that the minister seemed to be adamant that Talwar not continue as the bank chairman. The minister admitted that the problem was Talwar’s lack of flexibility on the cement company issue, and said that if he did not resign, he would have to be dismissed. Talwar said he had no intention of resigning, and the minister could decide on dismissal.

As Mr Vaghul tells it, Sanjay next asked the Central Bureau of Investigation (CBI) to look for grounds on which Talwar could be dismissed. It turned out that Talwar had sent appeals to many businessmen, seeking donations for the Auroville project to which he was devoted. But no businessman was willing to testify that Talwar had spoken to him or tried to persuade him to make a donation. All that he had done was to forward an appeal signed by Indira Gandhi and the secretary-general of the United Nations (U Thant), recommending the Auroville project for support. The CBI was forced to close the case.

Sanjay now lost all patience, and told the minister to amend the SBI Act so that Talwar could be dismissed without stating the reason. As this was during the Emergency and all opposition leaders were in jail, Parliament rubber-stamped the Act’s amendment in no time. The minister told Talwar one final time that if he did not resign he would be dismissed. Talwar remained defiant.

Finally, on August 4, 1976, Talwar was given 13 months’ leave and asked to hand over charge to the managing director of the bank. Even after arming itself with the required powers, the government could not bring itself to sack Talwar. Mr Vaghul records that there was hardly anyone to see off SBI’s greatest chairman that evening, so great was the atmosphere of fear at the time.

He was removed from his office for his principled stand against an unjust and unethical interference by the Government in the functioning of the Bank.

The government had to amend the laws in the parliament in order to get rid of Talwar, which became well known in banking circles as the “Talwar Amendment.”

From this time on there started what can only be termed as crony capitalism where politicians could not only dictate who to give loans to but could also interfere in who should be the head of the bank. Promotions were given to the more malleable people who would ensure that loans went to friends in high places in touch with politicians.

Thus, yet another institution was corrupted by a family that thought it had the God Given Right to rule and change laws for its friends and family.

Today we are paying the price for this.

DISCLAIMER : Views expressed above are the author's own.

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The blog will cover current issues ranging from politics to pollution — getting readers to question why India is behind in many aspects. Why do countries like China, Thailand, and Malaysia get more tourism, business and investments? Why do Indians blame history, geography or politicians for all our problems? How can Indians be more responsible? India is one of the most undisciplined countries, but when Indians go abroad they are among the most law abiding people. No Free Lunch will try to provoke readers to debate on how Indians can contribute toward building a better country.

Author

Freelance journalist Ashali Varma has authored the biography of her father late Lt. Gen. PS Bhagat — ‘The Victoria Cross: A Love Story’. She was executive producer with the International Commentary Service Inc, New York in 1990. She was the executive publisher of The Earth Times, New York (1992- 98). She has also worked as the editor of Choices Magazine, United Nations Development Programme. She writes on various issues including human rights, population and sustainable development.

Freelance journalist Ashali Varma has authored the biography of her father late Lt. Gen. PS Bhagat — ‘The Victoria Cross: A Love Story’. She was execu. . .

Blog

The blog will cover current issues ranging from politics to pollution — getting readers to question why India is behind in many aspects. Why do countries like China, Thailand, and Malaysia get more tourism, business and investments? Why do Indians blame history, geography or politicians for all our problems? How can Indians be more responsible? India is one of the most undisciplined countries, but when Indians go abroad they are among the most law abiding people. No Free Lunch will try to provoke readers to debate on how Indians can contribute toward building a better country.

Author

Freelance journalist Ashali Varma has authored the biography of her father late Lt. Gen. PS Bhagat — ‘The Victoria Cross: A Love Story’. She was executive producer with the International Commentary Service Inc, New York in 1990. She was the executive publisher of The Earth Times, New York (1992- 98). She has also worked as the editor of Choices Magazine, United Nations Development Programme. She writes on various issues including human rights, population and sustainable development.

Freelance journalist Ashali Varma has authored the biography of her father late Lt. Gen. PS Bhagat — ‘The Victoria Cross: A Love Story’. She was execu. . .